# Karman Holdings Inc.: Form 10-Q for the period ended Mar 31, 2025

- Company: [Karman Holdings Inc.](/companies/krmn.md) (CIK 2040127)
- Form: 10-Q
- Filed: 2025-05-14
- Accepted by EDGAR: May 14, 2025, 16:24 ET
- Period: 2025-03-31
- Accession: 0000950170-25-071463
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/2040127/000095017025071463/ck0002040127-20250331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/2040127/000095017025071463/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-01-01 to 2025-03-31 | $100.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2025-01-01 to 2025-03-31 | $60.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2025-01-01 to 2025-03-31 | $39.5m | us-gaap:GrossProfit |
| Operating income | 3 months, 2025-01-01 to 2025-03-31 | $10.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2025-01-01 to 2025-03-31 | $11.4m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $3.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | −$4.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | −$0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-01-01 to 2025-03-31 | 132,175,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | −$13.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2025-01-01 to 2025-03-31 | $5.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2025-03-31 | $113.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2025-03-31 | $301.5m | us-gaap:AssetsCurrent |
| Total assets | at 2025-03-31 | $875.4m | us-gaap:Assets |
| Current liabilities | at 2025-03-31 | $90.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-03-31 | $526.5m | us-gaap:Liabilities |
| Current portion of debt | at 2025-03-31 | $7.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2025-03-31 | $348.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,723 characters.

*You should read the following discussion in conjunction with our unaudited interim condensed consolidated financial statements, including the related notes thereto, contained within this Item 1 of this Quarterly Report. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties. You should read the sections of this prospectus titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For purposes of this section, references to the “Company,” “Karman,” “we,” “us,” and “our” refer to TCFIII Spaceco Holdings and its other subsidiaries prior to the Corporate Conversion and to Karman Holdings Inc. or Karman Holdco and its consolidated subsidiaries for all periods following the Corporate Conversion.*

### Overview

We specialize in the rapid design, development and production of critical, next-generation system solutions for launch vehicle, satellite, spacecraft, missile defense, hypersonic and UAS customers. Our integrated payload protection, propulsion, and interstage system solutions are deployed across a wide variety of existing and emerging programs supporting important Department of Defense and space sector initiatives. We estimate that no single program accounted for more than 11% of sales in the three months ended March 31, 2025 or the three months ended March 31, 2024, with revenue from over 100 active programs supporting current production and next-generation space, missile, hypersonic, and defense applications.

We believe that our engineering expertise and track record with critical piece, part and subcomponent manufacturing positions us to successfully serve customers who rely on us to deliver the technical design and scaled manufacturing of integrated system solutions that are required to withstand extreme environments and meet stringent performance requirements. Our highly engineered solutions are organized into three key families: Payload Protection and Deployment Systems, Propulsion Systems, and Aerodynamic and Interstage Systems:

*Payload Protection Systems*: involves the full design and manufacturing of the top section of a booster, launch vehicle, payload, or missile system.

*Propulsion Systems*: involves the integrated offering of solid rocket motor subsystems, launch systems, and ablative composites.

*Aerodynamic and Interstage Systems*: involves supporting metallic and composite subsystems designed for aerodynamics and interstage separation.

Our solutions are deployed across three growing, core end markets including: Hypersonics and Strategic Missile Defense, Tactical Missile and Integrated Defense Systems, and Space and Launch. We currently serve a diverse customer base supported by long-term relationships and engineering partnerships and believe that our differentiated technical design, intellectual property, and track record of mission success provides us with a value proposition that proves difficult to replicate by current competitors and potential future entrants. By utilizing our vertically integrated, concept-to-production capabilities, we have created a business model aimed at creating long-term, sustainable value for our customers, the programs we support, and the warfighter.

Our business is guided by a key, overarching mission – to expand what’s possible in space and defense through the relentless pursuit of innovation, integration, and collaboration. Our business model is focused on providing innovative and reliable integrated system solutions, utilizing our concept-to-production capabilities. which include comprehensive in-house design, analysis, testing and qualification, and production services. This strategy and these capabilities, coupled with a broad and highly integrated IP portfolio, have provided what we believe to be a competitive advantage and market leading position.

We are focused on delivering innovative and customized solutions for our customers, with more than 204 multi-discipline engineers supporting our comprehensive in-house design and manufacturing capabilities. Our unique set of capabilities is supported by decades of experience across advanced material design, proprietary digital models, material science and testing, and manufacturing expertise. We believe that this collection of vertically integrated capabilities provides a strong value proposition for our customers who seek to simplify their supply chains, increase their speed to market, and reduce costs – all while benefitting from quality integrated system solutions. Our differentiated market offering is supported by significant sole- and single-source contract positions.

Our IP portfolio is enabled by our differentiated technical design expertise, which affords us the ability to work collaboratively with customers earlier in the program development cycle to develop mission-critical solutions. Such early participation quite often leads to difficult-to-replicate solutions, as Karman solutions become part of the production specification. It is our belief that once a supplier has been qualified as a supplier on a particular program and delivers on the basis of quality, it is typically unlikely that a prime integrator would pursue re-qualification given a relatively lengthy and costly process. We believe this provides a strong competitive advantage for Karman, who benefits from the longevity of missile and space programs and the visible and recurring revenue streams provided. Furthermore, our key design philosophy is centered around solving for an optimal solution for the customer given a specified set of performance requirements. These optimal solutions quite often integrate our patented materials, subcomponents, and proprietary manufacturing processes that have been developed over the past 40+ years.

Our Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations reflect estimates and assumptions made by management. Events and changes in circumstances arising after March 31, 2025, including those resulting from the continuing impacts of the current unfavorable macroeconomic climate, will be reflected in management’s estimates for future periods.

### Corporate Conversion

We currently operate as a corporation under the name Karman Holdings Inc. Prior to our initial public offering (the “IPO”), we converted from a Delaware limited liability company named TCFIII Spaceco Holdings LLC. In the conversion, all of our outstanding equity interests and all outstanding P Unites were converted into 123.8 million shares of common stock of Karman Holdings Inc.

On February 14, 2025, we completed the IPO of 26.5 million shares of its common stock at a public offering price of $22.00 per share, of which, 8.4 million shares were sold by the Company. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions, payments to phantom unit holders and other offering expenses, were approximately $147.3 million.

### Key Factors Impacting Our Performance

### U.S. Government Spending and Federal Budget Uncertainty

Changes in the volume and relative mix of U.S. government spending as well as areas of spending growth could impact our business and results of operations. In particular, our results can be affected by shifts in strategies and priorities on homeland security, intelligence, defense-related programs, infrastructure and urbanization and continued increased spending on technology and innovation, including cybersecurity, artificial intelligence, connected communities and physical infrastructure. Cost-cutting and efficiency initiatives, along with current and future budget restrictions, spending cuts, and shifts in priorities, could lead our customers—those conducting significant business through U.S. government contracts—to reduce or delay funding. This may result in inconsistent or reduced investments of appropriated funds, potentially diminishing demand for our solutions and services. Furthermore, any disruption in the functioning of government agencies, including as a result of government closures and shutdowns, could have a negative impact on our operations and cause us to lose revenue or incur additional costs due to, among other things, our inability to maintain access and schedules for government testing or deploy our staff to customer locations or facilities as a result of such disruptions.

There is also uncertainty around the timing, extent, nature and effect of Congressional and other U.S. government actions to address budgetary constraints, caps on the discretionary budget for defense and non-defense departments and agencies, and the ability of Congress to determine how to allocate the available budget authority and pass appropriations bills to fund both U.S. government departments and agencies that are, and those that are not, subject to the caps. Additionally, budget deficits and the growing U.S. national debt may increase pressure on the U.S. government to reduce federal spending across all federal agencies, with uncertainty about the size and timing of those reductions. Furthermore, delays in the completion of future U.S. government budgets could in the future delay procurement of the federal government services we provide. A reduction in the amount of, or reductions, delays, or cancellations of funding for, services that we are contracted to provide to the U.S. government as a result of any of these impacts or related initiatives, legislation or otherwise could have a material adverse effect on our business and results of operations. Significant delays or reductions in appropriations for our programs and changes in U.S. government priorities and spending levels more broadly may negatively impact our business and could have a material adverse impact on our business, financial condition and results of operations.

### Operational Performance on Contracts

Revenue, net income, and the timing of our cash flows depend on our ability to perform on our contracts. When agreeing to contractual terms, our management team makes assumptions and projections about future conditions and events. The accounting for our contracts and programs requires assumptions and estimates about these conditions and events. These projections and estimates assess:

- the productivity and availability of labor;
- the allocation of indirect costs to labor and material costs incurred;
- the complexity of the work to be performed;
- the cost and availability of materials and components; and
- schedule requirements.

If there is a significant change in one or more of these circumstances, estimates or assumptions, or if the risks under our contracts are not managed adequately, the profitability of contracts could be adversely affected. This could affect net income and margin materially.

In particular, profitability can fluctuate predicated on the type of contract awarded. Typically fixed-price development programs on complex systems represent a higher risk profile to complete on-budget. To the extent our fixed-price development efforts create a larger portion of our revenue output, this may result in reduced operating margins given the higher risk profile.

Additionally, the timing of our cash flows is impacted by the achievement of billable milestones on contracts. For instance, delays in reaching these milestones can lead to temporary cash flow shortfalls, while early completions compared to initial estimates can result in cash flow influxes. Historically, this has resulted and could continue to result in fluctuations in working capital levels and quarterly free cash flow results.

To manage these fluctuations, we have implemented several strategies, such as maintaining a buffer of liquid assets and closely monitoring project timelines to anticipate cash flow needs. Despite these measures, the inherent variability in milestone achievements means that quarter-to-quarter comparisons of our results of operations may not necessarily be meaningful and should not be relied upon as indicators of future performance.

We expect these fluctuations to persist, particularly as we take on more complex and long-term projects. However, we believe that our proactive cash flow management strategies will help mitigate the impact of our overall financial stability.

### Regulations

Increased audit, review, investigation and general scrutiny by U.S. government agencies of performance under government contracts and compliance with the terms of those contracts and applicable laws could affect our operating results. Negative publicity and increased scrutiny of government contractors in general, including us, relating to government expenditures for contractor services and incidents involving the mishandling of sensitive or classified information as well as the increasingly complex requirements of the DoD and the United States intelligence community, including those related to cybersecurity, could impact our ability to perform in the markets we serve.

If a government inquiry or investigation reveals improper or illegal activities, we may face civil or criminal penalties or administrative sanctions, including contract termination, fines, fee forfeiture, payment suspension, or suspension and debarment from conducting business with U.S. Government agencies. Any of these actions could materially and adversely impact our reputation, business, financial condition, results of operations, and cash flows.

Additionally, U.S. Government procurement regulations impose various operational requirements on government contractors. Non-compliance with these regulations could lead to civil or criminal penalties, which may materially adversely affect our operating results.

### Acquisitions

We consider the acquisition of businesses and investments that we believe will expand or complement our current portfolio and allow access to new customers or technologies. We also may explore the divestiture of businesses that no longer meet our needs or strategy or that could perform better outside of our organization.

### Industry Background

Our defense operations are affected by U.S. Department of Defense (“DoD”) budget and spending levels, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the global and national security threat environment. Changes in these budget and spending levels, policies, or priorities, which are subject to U.S. domestic and foreign geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions, or other restrictions.

We believe that our business is well positioned in areas that the DoD and other customers indicate are priorities for future defense spending, including those based on the 2023 National Security Strategy document, the 2024 U.S. National Security related budget and the National Defense Authorization Act (“NDAA”), and also the related Future Years Defense Program or five- year projection of the forces, resources and programs needed to support the DoD’s strategy and operations.

### Components of Operations

### Revenues

We generate our revenue primarily from the design, development and deployment of systems and subsystems (Propulsion Systems, Aerodynamic Interstage Systems, and Payload Protection and Deployment Systems) across three end markets (Hypersonic and Strategic Missile Defense, Missile and Integrated Defense Systems, and Space and Launch). We do not believe our revenues are subject to significant seasonal variations.

### Cost of Goods Sold

Cost of goods sold consists of direct costs and allocated indirect costs. Direct costs include labor, materials, subcontracts and other costs directly related to the execution of a specific contract. Indirect costs include overhead expenses, fringe benefits and depreciation.

### General and Administrative Expenses

Our general and administrative expenses (“G&A”) include salaries, fringe benefits (such as health insurance, retirement plans, vacation and sick days), and other expenses related to selling, marketing and proposal activities, certain administrative costs, operational overhead expenses, share-based compensation expenses and amortization of acquired intangible assets. Some G&A expenses relate to marketing and business development activities that support both ongoing business areas as well as new and emerging market areas. These activities can be directly associated with developing requirements for applications of capabilities created in our business development activities as well as managing human capital. G&A is an important financial metric that we analyze to help us evaluate the contribution of our selling, marketing and proposal activities to revenue generation.

### Results of Operations

### Comparison of the Three Months Ended March 31, 2025 and 2024

The following table sets forth, for the three months ended March 31, 2025 and 2024, certain operating data of the Company, including presentation of the changes in amounts between reporting periods:

*(in thousands, except percent)*

|  | Three Months Ended March 31, 2025 | 2024 | Change Dollar | Percent |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $100,124 | $83,006 | 17,118 | 20.6% |
| Cost of goods sold | 60,673 | 54,006 | 6,667 | 12.3% |
| Gross profit | 39,451 | 29,000 | 10,451 | 36.0% |
| General and administrative expenses | 23,288 | 10,089 | 13,199 | 130.8% |
| Depreciation and amortization expense | 6,200 | 5,412 | 788 | 14.6% |
| Total operating expenses | 29,488 | 15,501 | 13,987 | 90.2% |
| Net operating income | 9,963 | 13,499 | (3,536) | (26.2%) |
| Interest expense, net | (11,373) | (12,060) | 687 | (5.7%) |
| Other income (expense) | (80) | 770 | (850) | (110.4%) |
| Provision for income taxes | (3,308) | (87) | (3,221) | 3,702.3% |
| Net income (loss) | (4,798) | 2,122 | (6,920) | (326.1%) |
| Net Income (loss) Margin | (4.8%) | 2.6% |  | (7.3%) |
| Operating Margin | 10.0% | 16.3% |  | (6.3%) |
| Gross Profit Margin | 39.4% | 34.9% |  | 4.5% |

### Revenue

Revenue for the three months ended March 31, 2025 increased $17.1 million, or 20.6%, to $100.1 million as compared to $83.0 million for the three months ended March 31, 2024. Revenue represents sales from our existing businesses over comparable periods.

The increase in revenues for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily attributable to organic growth across all end-markets, Tactical Missile and Integrated Defense Systems, followed by Hypersonics and Strategic Missile Defense and Space and Launch.

As described in additional detail below, the results of operations include the following disaggregation of end market revenues:

*(in thousands, except percent)*

|  | Three Months Ended March 31, 2025 | 2024 | Change Dollar | Percent |
| --- | ---: | ---: | ---: | ---: |
| Hypersonics and Strategic Missile Defense | $30,056 | $24,822 | $5,234 | 21.1% |
| Space and Launch | 33,875 | 30,256 | 3,619 | 12.0% |
| Tactical Missile and Integrated Defense Systems | 36,197 | 27,928 | 8,269 | 29.6% |
| Total Revenue | $100,128 | $83,006 | $17,122 | 20.6% |

Growth in Hypersonics and Strategic Missile Defense revenue was driven by a net increase in funded development and production programs, primarily progress on the Next Generation Interceptor (“NGI”) program, partially offset by a decrease in revenue from another development program that did not advance to production.

Space and Launch revenue grew as a result of a net increase in funded development and production programs, partially offset by a decrease in revenue from the Space Launch Systems (“SLS”). A projected increase in U.S. space launch cadence from commercial and defense missions is likely to result in continued revenue growth in and beyond the current fiscal year.

Tactical Missiles and Integrated Defense Systems revenue grew as a result of a net increase from key programs entering or continuing their production phases within their program lifecycles, partially offset by temporary declines in other programs. This market’s growth continues to be supported by successful system deployments to active conflict zones, the replenishment of U.S. military inventories and continued investment in next-generation capabilities.

### Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $60.7 million for the three months ended March 31, 2025, from $54.0 million for the three months ended March 31, 2024. The $6.7 million, or 12.3%, increase in cost of goods sold was primarily a result of increased labor costs to support revenue growth.

*(in thousands, except percent)*

|  | Three Months Ended March 31, 2025 | 2024 | Change Dollar | Percent |
| --- | ---: | ---: | ---: | ---: |
| Labor | $27,677 | $22,375 | $5,302 | 23.7% |
| Materials | 26,236 | 25,553 | 683 | 2.7% |
| Overhead | 4,091 | 4,140 | (49) | (1.2%) |
| Depreciation | 2,669 | 1,938 | 731 | 37.7% |
| Total cost of goods sold | $60,673 | $54,006 | $6,667 | 12.3% |

Gross margin increased by 4.5% to 39.4% for the three months ended March 31, 2025, from 34.9% for the three months ended March 31, 2024, which was primarily driven by operating leverage and improved operating efficiency.

### Operating Expenses:

### General and Administrative Expenses

General and administrative expenses increased to $23.3 million for the three months ended March 31, 2025 from $10.1 million for the three months ended March 31, 2024. General and administrative expenses and the related percentage changes for the three months ended March 31, 2025 and 2024 were as follows:

*(in thousands, except percent)*

|  | Three Months Ended March 31, 2025 | 2024 | Change Dollar | Percent |
| --- | ---: | ---: | ---: | ---: |
| Payroll | $6,604 | $4,877 | $1,727 | 35.4% |
| Professional fees | 4,386 | 2,074 | 2,312 | 111.5% |
| Marketing | 111 | 83 | 28 | 33.7% |
| Computers & Software | 984 | 456 | 528 | 115.8% |
| Share-based compensation | 8,084 | 251 | 7,833 | 3,120.7% |
| Other | 3,119 | 2,348 | 771 | 32.8% |
| Total general and administrative expenses | $23,288 | $10,089 | $13,199 | 130.8% |

The 130.8% increase in general and administrative expenses between the three months ended March 31, 2025 and 2024 was primarily driven by an increase in share-based compensation and professional fees for tax, accounting, and consulting fees primarily related to the IPO. These additional costs reflect the continued expansion of our operational support capabilities and the integration of newly established regional campuses and acquisitions. The increase in general and administrative expenses was partially offset by decreases in bad debt expenses and legal fees.

### Depreciation and Amortization

Depreciation and amortization expense increased to $6.2 million for the three months ended March 31, 2025 compared to $5.4 million for the three months ended March 31, 2024. The increase in amortization expense for the three months ended March 31, 2025, is primarily attributable to the amortization of $18.3 million of intangible assets acquired in the RMS acquisition on February 14, 2024. The acquired RMS intangible assets will be amortized over a weighted average period of 12.1 years. Depreciation of fixed assets used in the production of goods sold is included in cost of goods sold.

### Interest Expense, net

Interest expense, net for the three months ended March 31, 2025 decreased by $0.7 million, or (5.7%), to $11.4 million compared to $12.1 million during the three month ended March 31, 2024. Both the Revolving Credit Facility and Term Note payable are variable interest rate loans with an applicable spread. For additional information related to debt, see Note 6, Debt, in the Notes to the Condensed Consolidated Financial Statements.

### Other Income (expense)

Other income (expense) for the three months ended March 31, 2025 and 2024 was ($0.1) million and $0.8 million, respectively. The difference between periods was primarily attributable to the gain from a settlement of a shareholder note in the three months ended March 31, 2024.

### Provision for Income Taxes

The provision for income taxes was $3.3 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively. The increase in provision for income taxes was attributable to net loss during the three months ended 31, 2025. For additional information regarding provisions for taxes, see Note 13, Provision for Income Taxes, in the Notes to the Condensed Consolidated Financial Statements.

### Key Financial and Non-GAAP Operating Measures

We measure our business using both key financial and operating data including key performance indicators (“KPIs”) and non-GAAP financial measures and use the following metrics to manage our business, monitor results of operations and ensure proper allocation of capital: (i) Revenue, (ii) Funded Backlog, (iii) EBITDA, (iv) Adjusted EBITDA and (v) Adjusted EBITDA Margin. We believe that these financial performance metrics represent the primary drivers of value enhancement, balancing both short and long-term indicators of increased shareholder value. These are the metrics we use to measure our results and evaluate our business and related contract performance.

### Financial and Operating Data

*(unaudited, in thousands, except percent)*

|  | Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Revenue | $100,124 | $83,006 |
| Funded Backlog1 | 636,350 | 539,979 |
| Net income (loss) | (4,798) | 2,122 |
| EBITDA2 | 18,752 | 21,619 |
| Adjusted EBITDA2 | $30,319 | $24,297 |
| Net income (loss) margin | (4.8%) | 2.6% |
| Adjusted EBITDA Margin2 | 30.3% | 29.3% |

1\. *Funded Backlog* - Represents the total value of existing contracts, less amounts previously invoiced. Contract types include but are not limited to purchase orders, long term agreements and contractual authorization to proceed.

2\. Note on non-GAAP financial measures: Throughout the discussion of our results of operations we use non-GAAP financial measures EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, as measures of our overall performance. Definitions and reconciliations of these measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP are included below.

### Non-GAAP Financial Measures

We believe the non-GAAP financial measures will help investors understand our financial condition and operating results and assess our future prospects. We believe these non-GAAP financial measures, each of which is discussed in greater detail below, are important supplemental measures because they exclude unusual or non-recurring items as well as non-cash items that are unrelated to or may not be indicative of our ongoing operating results. Further, when read in conjunction with our U.S. GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as a tool to help make financial, operational and planning decisions. We may use non-GAAP financial metrics in certain Management compensation plans, debt covenants, internal budgetary decision making, and other resource allocation decisions. Finally, these measures are often used by analysts and other interested parties to evaluate companies in our industry by providing more comparable measures that are less affected by factors such as capital structure.

We recognize that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes, thereby affecting their comparability from company to company. In order to compensate for these and the other limitations discussed below, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with U.S. GAAP. Readers should review the reconciliations below and should not rely on any single financial measure to evaluate our business.

We define these non-GAAP financial measures as:

EBITDA/Adjusted EBITDA - We define EBITDA as our net income before income taxes, depreciation and amortization and interest expense. References to Adjusted EBITDA refer to EBITDA plus, as applicable for each period any non-cash share-based compensation expenses, including non-cash gains and losses on equity, non-cash gains and losses on derivative instruments associated with equity, termination expenses, and personnel expenses from discontinued operations. Additionally, Adjusted EBITDA excludes certain nonrecurring costs that management excludes in contemplation of budget decisions and are not costs of operating the business such as entity wide re-branding initiatives or acquisition integration costs. Adjusted EBITDA excludes the costs associated with lender and administrative agent fees associated with one-off amendments, as these are not directly related to the operations of the business and are non-recurring. Lastly, Management excludes other non-recurring costs including net gains from disposition of assets, non-cash gains and losses from any hedging arrangements, non-cash impairment losses, business interruption insurance proceeds, and any non-recurring transaction expenses.

Adjusted EBITDA Margin - Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. Adjusted EBITDA and Adjusted EBITDA Margin are not measures calculated in accordance with U.S. GAAP, and they should not be considered an alternative to any financial measures that were calculated under U.S. GAAP.

Adjusted EBITDA and Adjusted EBITDA Margin are used to facilitate a comparison of the ordinary, ongoing and customary course of our operations on a consistent basis from period to period and provide an additional understanding of factors and trends affecting our business. Adjusted EBITDA and Adjusted EBITDA Margin are driven by changes in volume, performance, contract mix and general and administrative expenses and investment levels. Performance, as used in this definition, refers to changes in profitability and is primarily based on adjustments to estimates at completion on individual contracts. These adjustments result from increases or decreases to the estimated value of the contract, the estimated costs to complete the contract, or both. These measures therefore assist management and our board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure, asset base and items outside the control of the management team and expenses that do not relate to our core operations. Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to similarly titled non-GAAP measures used by other companies as other companies may have calculated the measures differently.

Adjusted EPS represents GAAP net income (loss) per fully diluted share, excluding transaction related expenses, integration expenses and non-recurring costs, lender and administrative agent fees and share-based compensation as they are not representative of our operating performance.

The reconciliation of GAAP to non-GAAP financial measures is provided below.

#### Reconciliation of GAAP to Non-GAAP Financial Measures:

*(unaudited, in thousands, except percent)*

|  | For the three months ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| **Net (loss) income** | $(4,798) | $2,122 |
| Income tax provision | 3,308 | 87 |
| Depreciation and amortization1 | 8,869 | 7,350 |
| Interest expense, net | 11,373 | 12,060 |
| **EBITDA** | 18,752 | 21,619 |
| Transaction related expenses2 | 1,962 | 2,011 |
| Integration expenses and non-recurring restructuring costs3 | 261 | 416 |
| Lender and administrative agent fees4 | 1,260 | — |
| Share-based Compensation5 | 8,084 | 251 |
| **Adjusted EBITDA** | $30,319 | $24,297 |
| Revenue | $100,124 | $83,006 |
| Net income (loss) margin | (4.8%) | 2.6% |
| Adjusted EBITDA Margin | 30.3% | 29.3% |

*(unaudited)*

|  | For the three months ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| **GAAP net (loss) income per share and unit, respectively** | $(0.04) | $0.01 |
| Transaction-related expenses2 | 0.02 | 0.01 |
| Integration expenses and non-recurring restructuring costs3 | — | 0.01 |
| Lender and administrative agent fees4 | 0.01 | — |
| Share-based compensation5 | 0.06 | — |
| **Adjusted EPS** | $0.05 | $0.03 |

1\. Depreciation and amortization expense includes $2.7 million and $1.9 million of allocated depreciation and amortization from cost of goods sold for the three months ended March 31, 2025, and 2024, respectively.

2\. Represents legal and due diligence fees incurred in connection with planned and completed acquisitions, which are required to be expensed as incurred. During the periods presented, these costs were incurred for due diligence and legal fees related to an acquisition of equipment and intangible assets. Additionally, the Company incurred certain professional service fees related to its IPO that did not meet the requirements to be deferred issuance costs, these costs are considered non-recurring and outside the ordinary course of business, and therefore are not indicative of ongoing operating performance. During the three months ended March 31, 2025, the $1.9 million was mostly related to such IPO related expenses.

3\. These costs include company-wide system implementation expenses and Company re-branding costs. This category also includes post-acquisition integration costs, and employee expenses related to acquisitions or restructuring activities.

4\. Reflects non-recurring lender fees associated with one-off amendments to the Company’s credit agreement, separate from ongoing administrative fees.

5\. Reflects share-based compensation expenses associated with the Company’s P Units and Phantom Units that were fully vested in connection with the completion of the Company’s IPO in February 2025.

Although we use EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS as measures to assess the performance of our business and for the other purposes set forth above, the use of non-GAAP financial measures as analytical tools has limitations, and you should not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with U.S. GAAP. Some of these limitations are:

- EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin do not reflect the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and the cash requirements for such replacements are not reflected in EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin;
- EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS exclude the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions;
- the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin; and
- EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin do not include the payment of taxes, which is a necessary element of our operations.

Because of these limitations, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS should not be considered as measures of cash available to us to invest in the growth of our business. Management compensates for these limitations by not viewing EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS in isolation and specifically by using other U.S. GAAP measures, such as net sales and operating profit, to measure our operating performance. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS are not measurements of financial performance under U.S. GAAP, and they should not be considered as alternatives to net income/(loss) or cash flow from operations determined in accordance with U.S. GAAP. Our calculations of EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS may not be comparable to the calculations of similarly titled measures reported by other companies.

### Critical Accounting Estimates

Our discussion and analysis of financial condition and results of operations discusses our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical estimates include those related to revenue recognition, intangible assets acquired in a business combination and goodwill. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

### Revenue Recognition

Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of the business or market conditions. Management judgments and estimates have been applied consistently and have been reliable historically.

The majority of our revenue is generated pursuant to written contractual arrangements to design, develop, manufacture and/or modify complex products, and to provide related engineering, technical and other services according to customer specifications. In most cases, goods or services provided under the Company’s contracts are accounted for as a single performance obligation due to the complex and integrated nature of its products and services. These contracts generally require significant integration of a group of goods and services to deliver a combined output. These contracts may be cost-plus fixed price or time and materials. Revenue is recognized over time using the input method, by tracking costs incurred, which measures progress toward completion and control is transferred as the Company performs its contractual obligations due to the performance having no alternative use and the Company’s enforceable right to payment. The Company estimates profit on these contracts as the difference between total estimated revenues and total estimated costs at completion (EAC) and recognizes profit as costs are incurred. Significant judgment is used to estimate total costs at completion. EAC’s are estimated using historical actual margins as a percentage of revenue, applied to open jobs. Unforeseen events and circumstances can alter the estimate of the costs and potential benefits associated with a particular contract. Changes in job performance, job conditions, estimated profitability, and final contract settlements may result in revisions to costs and income. The Company recognizes changes in contract estimates on a cumulative “catch-up” basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate.

### Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We test goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change in a manner that indicates goodwill might be impaired.

For the impairment test, we first assess qualitative factors, macroeconomic conditions, industry and market considerations, triggering events, cost factors, and overall financial performance, to determine whether it is necessary to perform a quantitative goodwill impairment test. Alternatively, we may bypass the qualitative assessment for some or all of its reporting units and apply the quantitative impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). For the quantitative impairment test we estimate the fair value by weighting the results from the income approach and the market approach. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of its business. For purposes of testing goodwill for impairment, we operate as a single reporting unit. There was no impairment of our goodwill during the three months ended March 31, 2025 or 2024.

Acquired intangible assets include: customer relationships, customer production backlog, patents and know-how. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method which approximates the pattern in which the economic benefits of such assets are consumed. We assess amortized intangible assets for impairment when events or circumstances suggest that the carrying values may not be recoverable. This assessment involves comparing the carrying value of the assets to their undiscounted expected future cash flows. If the total undiscounted future cash flows are less than the carrying amount, we recognize an impairment loss equal to the difference between the carrying amount and the fair value of the assets. Determining fair value requires management to make estimates and judgments based on various factors, including projected revenues and associated earnings. We did not recognize any impairment losses during the three months ended March 31, 2025 or 2024.

### Material Weaknesses

As a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes- Oxley Act (“Section 404”). As a public company, we will be subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business.

The SEC defines a material weakness as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.” As previously reported in our Form 10-K for the year ended December 31, 2024, the following entity-level material weaknesses have been identified in our internal control over financial reporting.

- we did not fully maintain components of the COSO framework, including elements of the control environment, risk assessment, control activities, information and communication and monitoring activities components, relating to (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives, including technology, across the entity, (ii) developing general control activities over technology to support the achievement of objectives across the entity, and (iii) sufficiency of selecting and developing control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels.

The entity-level material weaknesses contributed to other material weaknesses within our system of internal control over financial reporting as follows:

- we did not design and maintain effective information technology general controls for certain information systems supporting its key financial reporting processes. Specifically, we did not design and maintain sufficient change management, security, operations, and system development controls for management-identified in-scope on-premise applications and vendor-supported applications; and
- we did not design and maintain effective process-level controls for all significant business process cycles;

We have begun the process of evaluating the material weaknesses and developing our full remediation plan. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Until the remediation plan is implemented, tested and deemed effective, we cannot assure that our actions will adequately remediate the material weaknesses or that additional material weaknesses in our internal controls will not be identified in the future. If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission could be adversely affected and could reduce the market’s confidence in our financial statements and harm our stock price. While we will work to remediate the material weaknesses as quickly and efficiently as possible, we cannot at this time provide an expected timeline in connection with any remediation plan. These remediation measures may be time consuming and costly and might place significant demands on our financial and operational resources.

As permitted under the U.S. securities laws, neither we nor our independent registered public accounting firm have performed or are yet required to perform an evaluation of the effectiveness of our internal control over financial reporting. In the future, we may identify additional material weaknesses or significant deficiencies in our internal control over financial reporting.

Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. Any weaknesses or deficiencies or any failure to implement new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our condensed consolidated financial statements, which could adversely affect our business and reduce the price of our common stock.

If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital market.

### Liquidity and Capital Resources

The following table summarizes our capitalization:

*(in thousands except ratio)*

|  | As of March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Cash and cash equivalents | $113,679 | $7,190 |
| Debt: |  |  |
| Finance lease liabilities (including current portion) | 80,608 | 81,033 |
| Revolving credit facility | — | 20,000 |
| Notes Payable, including current portion, net of debt issuance costs | 332,559 | 338,573 |
| Total debt | 413,167 | 439,606 |
| Stockholders' equity and members' equity, respectively | 348,918 | 184,794 |
| Total capitalization (debt plus equity) | $762,085 | $624,400 |
| Total debt to total capitalization | 1.18 | 2.38 |

Our principal historical liquidity requirements have been for organic growth, acquisitions, capital expenditures, servicing indebtedness, including finance lease liability payments, and working capital needs. We do not expect there to be substantial changes in our future capital requirements. We anticipate that over the next 12 months, we will meet our liquidity needs, including debt servicing, through cash generated from operations, available cash balances, and, if necessary, sales of accounts receivable and borrowings from our revolving credit facility. We fund our investing activities primarily from cash provided by our operating and financing activities.

On March 25, 2025, we extended the final maturity date of the term note payable and revolving line of credit with TCW from March 20, 2026 to April 15, 2026. All other material terms of the TCW Term Note and TCW revolving line of credit were unchanged.

In April, 2025, we entered into a new Credit Agreement (the “Citi Credit Agreement”) by and among Karman, the lenders from time to time party thereto and Citibank, N.A. (“Citi”), as the administrative agent for the lenders, and, substantially contemporaneously therewith, certain direct and indirect subsidiaries of Karman are expected to terminate all outstanding commitments and repay all outstanding obligations under the TCW Credit Agreement. This transaction resulted in the extinguishment of the aforementioned TCW Term Note and facilities under the TCW Credit Agreement and the issuance of a new $300.0 million term loan and $50.0 million revolving line of credit. The new term loan will mature on April 1, 2032 and the new revolving line of credit will mature on April 1, 2030.

Based on our current outlook, we believe that net cash provided by operating activities and net proceeds of $147.3 million from the offering will be sufficient to fund our cash requirements for at least the next twelve months. As we continue to expand our business, including by any acquisitions we may make, we may in the future require additional working capital for increased costs.

### Summary of Statement of Cash Flows

The following table summarizes the primary sources and uses of our cash flow:

*(in thousands)*

| Net cash provided by (used in): | For the three months ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Operatig activities | $(13,584) | $3,070 |
| Investing activities | (11,042) | (32,303) |
| Financing activities | 126,775 | 30,968 |
| Net increase in cash and cash equivalents | $102,149 | $1,735 |

### Operating Activities

Net cash used in operating activities for the three months ended March 31, 2025 was $13.6 million , primarily consisting of net loss of $4.8 million, non-cash item of $13.0 million and a net change in our operating assets and liabilities of $21.8 million. Change in our operating assets and liabilities was primarily driven by an increase in contract assets of $14.9 million, a decrease in contract liabilities of $3.9 million, which was mainly due to initial and subsequent measurement of contracts with customers, changes in business volume, and progress of existing contracts. Change in our operating assets and liabilities was also driven by a decrease in accounts payable, accruals and income tax payable of $20.0 million, which was mainly due to timing of payment and a decrease in accounts receivable of $7.5 million, which was due to timing of invoicing and improved collection.

Net cash provided by operating activities for the three months ended March 31, 2024 was $3.1 million, primarily consisting of net income of $2.1 million, non-cash items of $6.2 million and a net change in our operating assets and liabilities of $5.3 million. Change in our operating assets and liabilities was primarily driven by a decrease in accounts payable, accruals and income tax payable of 5.1 million, which was mainly due timing of payment.

### Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 was $11.0 million, as a result of purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2024 was $32.3 million, which was principally attributable to the RMS acquisition.

### Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $126.8 million, which was primarily driven by net proceeds from our IPO of $153.8 million, partially offset by repayment of revolving line of credit of $25.0 million and repayment of notes payable of $2.3 million.

Net cash provided by financing activities for the three months ended March 31, 2024 was $31.0 million, which was primarily driven by net proceeds from increasing our TCW Term Note by $34 million (net of debt issuance costs), partially offset by repayment of TCW Term Note of $2.7 million.

### Other Obligations and Commitments

See Note 6 through Note 8, of the Notes to the Condensed Consolidated Financial Statements for information regarding our other obligations and commitments.

### Leases

We lease certain facilities and equipment under financing and operating leases that expire at various dates through 2043. See Note 7, Leases, of the Notes to the Condensed Consolidated Financial Statements for information pertaining to lease payments relating to our operating and finance lease obligations.

Under the provisions of ASC 842, the Company has both finance and operating leases. The Company has recorded both a right-of-use (“ROU”) asset for each applicable lease and an associated liability for the right to use the asset and the obligation for future lease payments. Separate ROUs and liabilities have been recorded for finance and operating leases. ROUs for both lease categories are included in lease assets on the financial statements. Liabilities for both lease categories are included in short-term lease liabilities for amounts due within one year and in noncurrent lease liabilities, net of current portion for remaining amounts due. ROU calculations include management’s assessment of the probability of exercise of lease extensions ranging from 1 to 18 years. No leases include variable lease payments.

### Consolidated Lease Summary

On a consolidated basis, lease activity for the three months ended March 31, 2025 and 2024 were as follows:

*(in thousands)*

| Finance lease expense | Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Amortization of ROU assets | $2,293 | $1,513 |
| Interest on lease liabilities | 2,268 | 1,634 |
| Operating lease expense | 679 | 422 |
| Total | $5,240 | $3,569 |

On a consolidated basis, supplemental cash flow information for the three months ended March 31, 2025 and 2024 were as follows:

*(in thousands except percent and year)*

| Cash paid for amounts included in the measurement of lease liabilities | Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Operating cash flows from finance leases | $2,275 | $1,634 |
| Financing cash flows from finance leases | $1,226 | $329 |
| Operating cash flows from operating leases | $699 | $433 |
| ROU assets obtained in exchange for new finance lease liabilities | $— | $969 |
| ROU assets obtained in exchange for new operating lease liabilities | $77 | $— |
| Weighted-average remaining lease term in years for finance leases | 13.63 | n/a |
| Weighted-average remaining lease term in years for operating leases | 6.08 | n/a |
| Weighted-average discount rate for finance leases | 8.39% | n/a |
| Weighted-average discount rate for operating leases | 9.47% | n/a |

### Off-Balance Sheet Arrangements

As of March 31, 2025 and 2024, we did not have any off-balance sheet arrangements, as defined in Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows.

### Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies—Recent Accounting Pronouncements, of the Notes to the Condensed Consolidated Financial Statements for additional information.

### JOBS Act Election

We are currently an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

## Market risk

As filed, 1,877 characters.

### Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Revolving Credit Facility and Term Note, both of which have a floating interest rate component. We estimate that a 1% increase in interest rates for the three months ended March 31, 2025 and 2024 would have resulted in approximately a $0.8 million and $0.8 million increase in interest expense, respectively.

We had cash of $113.7 million and $7.2 million as of March 31, 2025 and 2024, respectively, which is held for working capital and general corporate purposes. We do not have significant amount of cash equivalents or restricted cash and we do not enter into investments for trading or speculative purposes. Our cash holdings in interest bearing accounts are exposed to market risk due to fluctuations in interest rates, which may affect our interest income.

We will continue to monitor market risk due to fluctuations in interest rates and potential impacts to the fair value of our holdings and operating cash flows.

### Inflation Risk

We have generally experienced increases in our costs of labor, materials and services consistent with overall rates of inflation, but we do not believe that inflation has had a material effect on our business, results of operations, or financial condition. We expect the impact of such increases will be mitigated by efforts to lower costs through manufacturing efficiencies, look for alternative sourcing and reevaluate pricing, as we did in the prior periods. However, continued cost inflation and supply chain disruptions during 2025 may continue to require similar efforts to mitigate the impact of continued cost inflation and supply chain disruptions on our results of operations. Our inability or failure to offset cost increases could adversely affect our business, results of operations, or financial condition.

## Controls and procedures

As filed, 4,917 characters.

### Evaluation of Disclosure Controls

Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, due to the material weaknesses in internal control over financial reporting described below, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are not effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Material Weaknesses

As previously reported in our Form 10-K for the year ended December 31, 2024, the following entity-level material weaknesses have been identified:

- we did not fully maintain components of the COSO framework, including elements of the control environment, risk assessment, control activities, information and communication and monitoring activities components, relating to (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives, including technology, across the entity, (ii) developing general control activities over technology to support the achievement of objectives across

the entity, and (iii) sufficiency of selecting and developing control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels.

The entity-level material weaknesses contributed to other material weaknesses within our system of internal control over financial reporting as follows:

- we did not design and maintain effective information technology general controls for certain information systems supporting its key financial reporting processes. Specifically, we did not design and maintain sufficient change management, security, operations, and system development controls for management-identified in-scope on-premise applications and vendor-supported applications; and
- we did not design and maintain effective process-level controls for all significant business process cycles;

We have begun the process of evaluating the material weaknesses and developing our full remediation plan. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Until the remediation plan is implemented, tested and deemed effective, we cannot assure that our actions will adequately remediate the material weaknesses or that additional material weaknesses in our internal controls will not be identified in the future. If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission could be adversely affected and could reduce the market’s confidence in our financial statements and harm our stock price. While we will work to remediate the material weaknesses as quickly and efficiently as possible, we cannot at this time provide an expected timeline in connection with any remediation plan. These remediation measures may be time consuming and costly and might place significant demands on our financial and operational resources.

## Risk factors

As filed, 755 characters.

*We have described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 risks and uncertainties that could cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. These risks and uncertainties are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations or the market price of our common stock. There have been no material changes to the risk factors previously described in our 2024 Annual Report on Form 10-K.*

Filed May 14, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-071463. Last ingested by Listed: Oct 27, 2026, 10:00 ET. No prices; not investment advice.